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Morning markets: Grain markets extend bear-bull truce, for now

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Bulls and bears appear to have called something of a, no doubt temporary, truce in grain markets.

 

Although bulls were firmly in control for most of the time since August, as the recovery from peak pandemic panic set in, they have lost one of their stirrups in the last few weeks.

 

The result, to switch metaphors, is that markets, having mounted the stairs upwards to their highest levels generally since 2013 or so, are now treading a horizontal passageway.

 

Nowhere fast

“We’re moving around but not really going anywhere,” said Mike Mawdsley at First Choice Commodities.

 

“May soybeans have been in this general area since the January crop report almost two months ago. The same for corn and wheat.”

 

In fact, “name a market from equities to fixed income to precious metals to agriculture, they are all trading with an uneasiness,” said Benson Quinn Commodities.

 

“I am not entirely sure the institutional investor is as committed to risk as we would be led to believe.”

 

Market equation

Richard Feltes at RJ O’Brien reported that “ag markets since late January have been essentially rangebound,” at $5.30-5.60 a bushel for Chicago May corn futures, $13.40-14.30 for May soybeans, and $6.16-6.64 a bushel for May soft red winter wheat.

 

“Ample bullish news has been discounted, including better than expected US corn and soybean exports, the slow pace of Brazil’s soy harvest/safrinha corn planting, a firming CRB-[commodities index] led by crude oil led by expectations for post-pandemic rebound and a tailwind from a rising equity market.”

 

However, against a “backdrop of historically tight” US corn and soybeans stocks, there is enough uncertainty around “to keep managed fund ag longs engaged, domestic end-users nervous, farmers cautious sellers, and importers ready to extend coverage at the first sign of even tighter 2021-22 US corn/soybean stocks”.

Price breaks will run into buying, but new price highs are “unlikely until the calendar advances further into March, when trade can further access the South American situation, US Delta weather [for early planting] and the extent, if any, of additional Chinese corn and soybean buying”.

 

‘Reached record values’

Early deals on Wednesday saw Chicago soybean futures head higher, but only by 0.1% to $14.13 ¾ a bushel for May as of 10:30 UK time (04:30 Chicago time), remaining well within its trading range since late January.

 

China continued to provide support, in terms of its own rising soybean prices, which soared 2.7% to 6,026 yuan a tonne for May on the Dalian exchange setting a fresh record high for a nearest-but-one contract.

 

“Chinese soybean values have reached record values in recent weeks as stocks dwindle ahead of South American deliveries,” said Karl Setzer at AgriVisor.

 

Brazil’s 2020-21 export campaign has got off to a slow start thanks to a delayed harvest, a reflection of rains slowing combines, and dryness around September-October which hampered seedings.

 

Paranagua vs Chicago

Still, seemingly, “Brazil is getting things back in order despite sluggish harvest activity,” said Benson Quinn Commodities, noting that “the port of Paranagua had soybeans go discount to [Chicago futures] for the first time since 2014”.

 

That would indicate supplies to sell, and undermine Chicago values, as is typical indeed at this time of year, when the market tends to uncover seasonal pressure.

 

Furthermore, soymeal prices eased back by 0.1% to $421.20 a short ton, after support attributed by some to official data showing a small decline in January of US output of distillers’ grains (DDGs), the rival high protein feed ingredient, and a byproduct of ethanol manufacture.

 

The US Grains Council in its latest market briefing reported DDG prices at 0.53 those of soymeal, “up from the prior week and above the three-year average of 0.43”.

 

And spot prices of DDGs “are expected to firm in March with better barge movement and loadings in locations disrupted by recent cold weather”.

 

‘Simultaneous tightness’

Soyoil futures offered more support to soybeans, in adding 0.3% to 49.83 cents a pound for May, staying ahead of their 10-day moving average, and in turn helped by firmness in rival vegetable oil palm oil, which added 0.7% to 3,669 ringgit a tonne in Kuala Lumpur.

 

Oil World noted that its price index for edible oils had for February “continued to appreciate and jumped to 51% above the five-year average for the month,” and indeed reached the “highest level in nine years.

 

“The price uptrend has been fuelled by the simultaneous tightness in palm oil, soyoil, sun oil, rapeseed oil and lauric oils, caused by lower-than-expected production and declining stocks.”

 

That said, according to Ivy Ng, regional head of plantations research at CGS-CIMB Research, Malaysian palm oil stocks are in rebuild mode, forecasting that “Malaysia’s palm oil stocks likely grew 7.6% month-on-month to 1.43m tonnes at end-February due to a slower decline in production compared to exports”.

 

‘China locking hedges’

For grain futures, however, sideways movement was reflected in losses, which reversed some of the gains of the last session.

 

Chicago corn futures for May shed 0.7% to $5.41 a bushel, despite, as Benson Quinn Commodities noted, “talk of China locking hedges on existing purchases”.

 

This is reassuring on two counts – first that China sees current prices as worth fixing, and secondly that they are committed to the purchases of US corn already made, and for which there have been worries of washouts.

 

After all, “of the unshipped US corn sales [for 2020-21] nearly one-third is to China at 430m bushels”, Mr Setzer noted.

 

‘Helter skelter’

Still, on the negative side, there remain worries over reports of the fresh spread of African swine fever (ASF), and other attendant viruses, through Chinas hog herd, with potential implications for feed, as well as pork, import needs.

 

“Trade is still trying to figure out if ASF is impacting the China pig herd and lowering feed demand,” said Steve Freed at ADM Investor Services.

 

Wheat was also a bit of a drag in shedding 0.8% to $6.61 a bushel in Chicago for May delivery, reversing a portion of its strong gains of Tuesday.

 

Mr Freed, while noting “helter skelter, choppy and volatile trade” in the last session, after the USDA cut ratings for US hard red winter wheat in major growing states, said that relief may be on the way to at least the dryness challenge to those crops (also tested of late by freeze).

 

“There is talk of better rains across parts of the US hard red winter wheat growing areas later this week.”

 

‘Nothing burger’

In New York, cotton futures, which have remained on the upward stairway until the last few days, looked like maybe they are moving into a sideways phase too, easing 0.2% to 90.78 cents a pound for May.

 

Louis Rose at Rose Commodity Group talk of “pretty much a nothing burger with respect to cotton specific news”, adding that “in raging bull markets, such often curbs fresh buying”.

 

“Droughty conditions across West Texas remain a concern, but current prices for new crop cotton could also propel US acreage to 13m plus acres this year,” above the 12m acres the USDA has pencilled in.

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